Demand Consolidation Is The First Priority
(Source: European Defence Agency; issued May 16, 2013)
BRUSSELS --- Gert Runde is the Secretary General of the AeroSpace and Defence Industries Association of Europe (ASD). In this interview he shares his views on how Europe’s defence industry can retain capabilities and profitability during challenging economic times.

What do you believe should be done to strengthen and enhance the European defence industrial base? How can institutions such as the EDA contribute effectively to this process?

The core role of the EDA is to help governments attain their defence objectives by outlining the efficiency gains that could be a result of doing things together. But Member States all come from different horizons and do not in all cases have homogenous security and defence policy goals. So convergence has to be created in a pragmatic way. Mostly, and particularly in this field, Europe is forging common approaches through dealing with crisis situations. And the European Union does not see itself as a prime military power and understandably prefers to seek foreign and security policy benefits by using “soft-power” approaches.

However we seem to be entering a period where we are witnessing a rising tension between not being a prime military power yet still being able to support doing the things we need and want to do to maintain a credible European foreign and security policy posture.


Is Europe investing enough in research and technology (R&T) and if not, what can be done to reverse the decline?

Our mastery of technologies is an essential part of our industrial capability portfolio. Much of this capability has been generated by government investment from research to procurement, and governments should have an overwhelming interest in maintaining the competitiveness of “their” industries. But the paradigm is changing. We are –we hope – moving towards a European, rather than a national defence market, and additionally there is a real benefit for our Member States if companies can maintain or enhance their global competitive edge. If industry is competitive in Europe, it will be competitive globally and vice-versa.


In 2006 EU defence ministers in the EDA Steering Board agreed they should increase the percentage of research and technology in defence budgets from 1.6% to 2.0%. But EDA's figures for 2010 showed it has fallen to 1.2%, and today the figure is certainly lower.


So how does Europe remain competitive in a market that is increasingly global and in which buyers are becoming far more intelligent in terms of procurement practices?
The fall in product demand and increasing under-investment in R&T among European Member States are causing companies to seek market opportunities in more dynamic economies in an effort both to sustain profitable activities and maintain their defence industrial capabilities. But the European defence industrial community can only be sustainably successful in foreign markets if it can demonstrate that there is a national and/or EU home market for their products. Home customer demand has always been a pre-requisite for successful defence exporting.

There are constraints to marketing globally.


What effect do you forecast from the activities of Commissioner Barnier and the Task Force on defence? How much input has ASD had in these activities?
The task force, as we interpret it, is there to help. It wants to help governments achieve the objectives they have set for themselves. While we welcome the Commission’s interest in supporting the defence sector, the actions available to or suggested by the Commission are not central to the underlying problems faced by the industry in the short and medium term, and need to be seen and understood in this context.

What do you see as the priorities for European defence in light of the EU Council’s workings? How important will the EU ministerial meeting on defence be at the end of this year?

In terms of raising to the level of heads of government the issue that there is more to European security and defence policy than the external aspect, the council meeting is extremely important. We have started our dialogue with the EDA and the Commission to ensure all arguments can be brought forward. We have tried the “bottom-up” approach but to achieve real progress, what Europe really needs now is the “top-down” focus and support by Heads of State and Governments.

Consolidation in the European defence industry is a hot topic, with the failed merger of EADS and BAE Systems and rumours regarding mergers within French industry bringing a fresh focus to it. What is your view on the imperative for consolidation and the barriers that stand in the way of making it effective?

Our association is not working on consolidation scenarios. These are issues where each company has its own strategy and its own portfolio of interests and those are extremely competition-sensitive. I can only offer you a few general considerations. “Consolidation” has become a buzz-word for journalists and analysts – it covers many underlying issues, which many people who use the word do not probably fully understand. It is important to understand that consolidation, in particular in our industry sector, is a result of market conditions and political concerns that are fully under control of the EU Member States.

More information:
This interview was first published in the third issue of the European Defence Agency's magazine "European Defence Matters".

Click here for the full text of the interview, on the EDA website.


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